Discussions abound regarding the rumored $10 billion sale of YES communities to Brookfield, a Canadian REIT. While we don’t really know all the facts at this point, there are some certainties that this deal represents, and we’re going to explore what those items are in depth.
Episode 411: The $10 Billion Mobile Home Park Deal Explained Transcript
2016 was a banner year for mobile home park acquisitions. There were three $2 billion transactions in that year, the sale of Carefree Communities to Sun Communities, a U.S. REIT. You also had the sale of RHP to Brookfield Asset, a Canadian REIT. And you also had then the sale of YES Communities to GIC, the sovereign nation fund of Singapore. But those three $2 billion transactions, which all happened to transpire in 2016, have now been eclipsed by one single transaction, that is the rumored $10 billion purchase of YES Communities by Brookfield Asset, the Canadian REIT. And to put that in perspective, a $10 billion single real estate transaction, according to AI, would rank as the fifth largest real estate transaction in U.S. history. So it's kind of a big deal, to quote Ron Burgundy out of The Anchorman. But it's no laughing matter, because a transaction of this magnitude in the sleepy trailer park industry is definitely a seismic shift in the way things are and the way our industry will be viewed going forward. This is Frank Rolfe of the Mobile Home Park Mastery podcast. We're going to talk about this $10 billion transaction that we really don't know all the facts on yet, because it was brought forth to the news media in the form of a rumor or a leak. And it's not really been publicly affirmed, to my knowledge, by either buyer or seller.
So we don't really know where the information came from. But within the industry, you hear the correct chatter you would that the transaction really does exist. So how big is YES Communities? Well, that's the first thing we don't know. We know how big YES Communities was when it was purchased by GIC back in 2016. But of course, after the purchase, they went on to add to that portfolio with additional purchases. So we don't really know exactly how many parks, and we don't really know exactly how many lots. And on top of that, we don't know exactly that it's $10 billion flat. Maybe it's around $10 billion. Maybe it's $8 billion. Maybe it's more than $10 billion. We don't really know. So all we can take from what's been leaked to the media is just what some of the stats might start to look like if we flesh it out. So based on $10 billion, if that is truly the price, and based by the best guess of the current number of lots, that would be a valuation of about $180,000 per space. And before you say, wow, that seemed like a lot. Again, I cannot emphasize enough, we don't know the exact price, and we don't know the exact number of lots. But we do know that right now in the mobile home park sector, it's not uncommon if you have a lot rent of around $800 a month to have a valuation on a lot of about $100,000. And we don't really know Yes's lot rents, but six-figure lot valuations are really not that uncommon. But most importantly, this is a gigantic transaction. It is huge. It is bigger than any multifamily transaction in US history. The only thing larger than this are found in the office and industrial sector. So let's break down some of the things, some of the inertia that will be created if this deal actually does happen. Well, the first, of course, is greater respect for the mobile home park industry, because we are a niche in real estate that's been laughed at almost since inception. Despite a few banner decades of glory, where mobile home parks were viewed very positively in the media, in the investment community, we then fell off a cliff starting in the 70s and languished for about a half a century. Now, when people hear that the fifth largest real estate transaction in American history is a mobile home park portfolio, it will definitely bring forth much greater respect for that niche.
I've seen it happen before. Back in the 90s, when Sam Zell got into the mobile home park sector, we had immediate, immediate respect from the overall investment community. In fact, probably our access to a lot of the very positive debt products today, Fannie, Freddie, CMBS, that probably was caused by Zell's entrance. But this is even probably bigger, because at a time when all the other sectors are doing terrible, office, lodging, retail, self-storage, suddenly mobile home parks rise to the top of the pack. It's also going to be a new benchmark for higher lot values. We don't know the exact value right now per lot, but it's a pretty good guess when that number does finally come out and is accurately identified, people will say, ah, well, that's what my park is worth too. Now, of course, that's not entirely true, because when you buy things in a massive volume, there's typically a little more value there because someone had to amass that giant portfolio. But nevertheless, it's going to give and usher in a new era in which six-digit lot valuations are becoming more standard. Next, it's a really big statement for all-age family parks because most of your largest U.S. mobile home park operators, namely ELS, Equity Lifestyle, and Sun Communities, which is also a REIT, they have always focused traditionally, not exclusively, but mostly on senior housing, 55-plus communities. And now here we have the biggest deal ever coming not from the senior sector, although yes, probably does own some senior parks, but most of what I've seen of their portfolio over the years has been mostly all-age family properties, and that's really significantly different. It's also an affirmation of the value of the flyover states because if you look at the map of yes communities, it's very much different than ELS and Sun, which are number one and number two right now as far as portfolio size. ELS and Sun are pretty much found on the coast, whether it's California or Florida, but yes communities is entirely different. It's found in more of the middle of America. It ranges from the Southwest all the way down to the Southeast, but it definitely does not follow the typical geological confines of those other large names in the business. It's also going to be probably a trigger for more industry consolidation.
We haven't seen consolidation in the mobile home park industry at nearly the speed of most other sectors. Part of that probably is the simple fact that we had COVID right in the middle of the beginning of consolidation. That didn't help whatsoever. And then of course, strange interest rate movement courtesy of Jerome Powell. But now this transaction may push forth a lot more people to get more aggressive because right now in our industry, we have all the major players, Carlisle Group, Apollo, TPG, they're already mobile home park owners, but on a smaller scale than they typically would be involved in. And now that this transaction goes down, clearly they will be a little more focused on acquisitions going forward. Also, it's a very interesting buyer because it's a Canadian REIT and not a US REIT. And this now means that Canada is only one REIT short of tying the US for number of mobile home park operators. In Canada, you have Brookfield and you have Flagship. And in America, you have ELS, Sun, and UMH. Why is Canada quickly jumping up in status? Well, there's some very advantageous reasons. If you look at what it costs to go public in Canada and the cost to go ahead and maintain your business within the confines of the Canadian Stock Exchange, it's a whole lot less expensive. But perhaps another reason is simply that Canadian people are more interested in income, whereas the US stock market has all these darlings like Tesla that don't really make any money. Over in Canada, most stocks are truly valued on cash flow. So maybe mobile home parks are becoming a better fit in Canada than they are with US investors. It's also a suggestion that interest rates are definitely on the decline. We all know that by now. Jerome Powell just cut things a quarter point and is supposedly going to cut it a few more times. And of course, Powell hates Trump with a fiery passion. He has no desire to drop rates at all. It's a miracle he got the quarter point decline. But of course, he's fired as of May of next year, whether he likes it or not. And when Powell goes, probably his replacement will be the first person who answers aggressively when asked the question, how far will you drop rates and how fast? Well, I'll drop them down to zero tomorrow. So I think we all realize that rates are finally coming down after rising with a horrendous trajectory starting in Q1 of 2022.
Finally, it's an affirmation that mobile home parks truly are the best positioned niche in all of real estate. The Internet had no impact on mobile home parks, at least no negative impact. Lots of good things, easier to market properties for sale for buyers and sellers, easier to market mobile home parks for interested customers to find nice, affordable housing. But we had no ill effect. And then all the other issues that have happened with all the megatrends in America as far as buying things online, people not wanting to go to the office, even the impacts of COVID, mobile home parks have fared enormously well. We have the lowest default rate of any form of debt. We are a huge, huge, positively affirmed group under Fannie Freddie. And as a result, mobile home parks have gone to the top of the pack. In fact, I think in the future, when real estate investors think about where they put their money, it will definitely be in mobile home parks and multifamily. The bottom line is this is a tremendous transaction for the industry, even though none of us really know the details. We don't know for sure there even is a purchase going on. But we have seen it in the media, as it has been publicly revealed that there is a $10 billion supposed sale going on between Brookfield and YES. But regardless of the final price, the final number of lots, the final value of the lot per dollar, the bottom line is the big winner is, in fact, mobile home park owners from coast to coast. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.